MARKET REPORT
Fed's Waller Says Treasury Safety Premium Is Gone, Lifting Neutral Rate View
The Fed governor's remarks pushed bond yields even as a global rally in Treasuries continued into the September 3 session.
Executive takeaway
Fed Governor Christopher Waller said the safety premium investors once paid for holding U.S. Treasuries has disappeared, an argument that implies a higher neutral interest rate even as bonds extended a global rally.
Federal Reserve Governor Christopher Waller said on September 3 that the so-called safety premium on U.S. Treasuries — the extra price investors were willing to pay just for the safety of government debt — has gone away. That matters because it implies the neutral rate, the interest rate level that neither stimulates nor restricts the economy, may need to sit higher than markets have priced.
The comments came even as the U.S. bond market extended a global rally, with Waller's remarks framed by wire reports as providing "some relief" to bond investors. The apparent tension — a Fed official arguing for a higher neutral rate while bonds rally — leaves the near-term path for yields unresolved.
What is unresolved: whether Waller's neutral-rate argument shows up in the Fed's next set of economic projections, and whether it changes market pricing for the next rate decision.
What would change this view
This framing would be wrong if the Fed's next Summary of Economic Projections does not raise the median longer-run (neutral) rate estimate from its prior level.
Wire sources cited
- Investing.com — All NewsU.S. bond market extends global rally, Fed’s Waller provides some reliefExternal ↗
- Investing.com — All NewsFed’s Waller says safety premium for Treasuries is gone, pushing neutral rate higherExternal ↗
Produced automatically by the INDY NEWS Desk from the public wire sources cited above, and checked against them before publication. Market commentary, not investment advice.